VC Perspectives from a Former Entrepreneur – Jeff Bussgang

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Why Venture Capitalists Invest In Pigs, Not Chickens

There is an old parable about the concept of commitment when it comes to breakfast. The story goes that when looking at a plate of the traditional fare of ham and eggs, it's obvious that the chicken is an interested party, but the pig is truly committed.

When I tell this story to entrepreneurs, my point is usually to contrast the approach VCs have to start-ups as compared to entrepreneurs. The VC is an interested party, but at the end of the day, if their start-ups live or die, they typically still have their job, their office and their portfolio of other investments. The entrepreneur, on the other hand, is the pig – truly committed to the outcome, with no fallback.

But lately I've been thinking about the parable of the pig and the chicken in the context of the characteristics that make a great entrepreneur – and the kind of entrepreneur that we VCs in general, and my firm Flybridge Capital in particular, like to back. In short, we like to back pigs – entrepreneurs who are truly and completely committed to the outcome of their venture, have a lot of stake, and no fallback.

How do we discern the difference between the two entrepreneurial archetypes? It's usually relatively easy, but sometimes subtle. Here are a few of the top characteristics we see in entrepreneurs who appear to be exhibiting behavior that suggests they're more like "chickens" when it comes to their start-up:

1) Prefer to wait to start their venture only after they receive funding ("We are ready to go, as soon as you give us your money." …um, does that mean you won't start the company if I don't give you my money?).

2) Don't quit their day jobs before receiving funding. ("This has been a side project for a year, and I can't wait to focus on it full-time" … um, if you can't wait – why are you waiting?)

3) Don't physically move themselves or their teammates to be in the same geography when starting their venture (think Eduardo Severin in the Social Network spending his summer in NYC).

4) Prefer to play a hands-off chairman role or look to quickly hire a COO/president in the early days rather than operate as the hands-on CEO/president. (I'll leave out the numerous examples to protect the innocent, but as a rule of thumb, companies with fewer than 40 employees don't typically need a COO).

5) Are unwilling to fully leverage their own personal and professional networks to drive recruiting, fundraising and business development.

On the other hand, the top five characteristics we see in "pig" entrepreneurs include:

1) Commit to the new company everything they have – even if that means moving their families, quitting their jobs, or even dropping our of their schools (as much as I don't want to condone or encourage this!).

2) Put themselves "out there" publicly and visibly with the industry, their relationships, family and friends. If the company is a failure, it will not be a quiet one.

3) Have not yet achieved a mega-success already and/or yet achieved wealth beyond the point of needing to work again. (I remember my mentor and boss at Open Market, CEO Gary Eichhorn, congratulating me when I became a first-time homeowner in the mid-1990s and observed: "I hope you got a large mortgage so that you are locked in and highly motivated to create wealth!").

4) Participate in a minimal set of outside interests and hobbies that aren't directly related to their business. Starting a company is a consuming, obsessive, 7×24 endeavor. Raising a family and remaining healthy is enough of a battle. When we see entrepreneurs with long lists of hobbies and outside interests, it's a red flag. One of my partners went so far as to look up the number of times an entrepreneur played golf one summer (which apparently is public information somehow, although I'm not a golfer so still don't know how he figured this out) as a barometer for how hard they were applying themselves to their new venture.

5) There exists a rare breed of entrepreneurs that have already had mega-success are so special and driven that they remain obviously hungry and scrappy. For these entrepreneurs, the key is to watch and see if they're still as hands on as they ever were (e.g., obsessed with the product, knee-deep in the financial model, out in front of the organization in selling). Again, these entrepreneurs are very special.

So what are you – the chicken or the pig? Investors clearly prefer one model over the other, not just in the founder, but in the entire team. As a result, as you are assembling your start-up team, be careful not to hire chickens. In the eyes of prospective investors, you may find it's even less kosher than hiring pigs.

Jeffrey,
Almost half of a year you published this post I read it now and I LOVED IT. My THANK YOU and congratulations for it.
I am looking for venture capital for a project and I would like to talk you – I thought maybe your firm Flybridge Capital could be interested.
Can we have a brief talk on Skype?
I’ll wait your reply.
Thanks again and all the best for you.

Great article. I agree–leveraging the network, but entrepreneurs should also have a substantial portion of their wealth into the company–through not taking a salary or writing checks alongside investors. If one believes in what they’re doing, they should be over-committed.

This is a fantastic conversation.
Speaking from my own experience with DailyDigital, figuring out when to transform from a chicken to a pig is all about timing. Startup success or failure can hinge upon taking the time make sure your ideas are valid, product market fit exists and the marketplace is ready.
Become a pig too early, without the right pieces in place, is recipe for failure. At the same time, being unwilling to get out of the hen house and dive into the pig pen when the time is right probably means you don’t have the confidence or passion to succeed anyways.
Unfortunately there doesn’t seem to be a handbook for getting the timing right, but plenty of perspective on chickens and pigs. Thanks for the insights and encouragement to be a pig (never thought I’d say that).

Great post and wonderful analogy Jeff! Could it be VC’s prefer their potential investment partners to be desperate and running close to the edge so the VC can extract more advantageous deals. It’s easier to cram someone down when it’s the VC’s deal or no deal. I remember my father’s advice the best time to borrow money is when you don’t need any, the deal is always better!

Chickens make a great dinner.
They also happen to provide one of the most nutritious foods without needing to be slaughtered.
Pigs on the other hand, while extremely tasty, have a lot of personality and are difficult to slaughter.
VC’s always want to kill the pig. But there a lot of good people with good ideas out there that get passed over for not being the “next big thing.”

@Bruce, as a funding source for micro-cap publicly traded companies, we look for and only fund companies with management “all in”. We also acknowledge that “previous success is the best predictor of future success”. Fact of life, like it or not…

The entrepreneurial challenge: staying 100% committed to your venture while the VCs faff around for months trying to get you to agree this year’s brand of capped reverse multiple preferential double-half-decaff shares. 😦

I’m a PIG, working the business for almost three years, still need looking for funding, but working it if we get funding or not. Remember the adage, where there is a will there is a rich uncle. Our website is: http://www.getplugging.com who wants to invest?
Bruce

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It is possible to be too committed. That’s why I love entrepreneurs who have had a taste of success so know what it looks like, but are still hungry and are going for the long, long ball.

Jeff, great post. I would expand the concept beyond the founders and try to get as many “pigs” as employees as well. There is nothing like committed people to build a great company and I even think that it is more important that other attributes.
Scott Maxwell
OpenView Venture Partners

Don’t you people see something wrong with this entire viewpoint? You’re being told that you have to be willing to do nothing but the business, have no life, be in no way conservative or careful or RESPONSIBLE. You are being told that in order to get their money you have to throw away everything you are and everything you have, not for the assurance of any kind of success, but just for the ability to play the game…all while they aren’t risking the same thing at all.
You know who the “investor” is in the pig? The farmer. He raises the pig, fattens it up…then slaughters it and sells it off to the highest bidder. And you people are begging to be the pig! Don’t you see this as a bit…self-destructive? Rigged to screw you? In any way unacceptable? Please tell the me the human spirit hasn’t degraded to such a degree that you’re begging for the opportunity to be someone else’s breakfast.
Remember, kids…the pig doesn’t benefit from the farmer’s investment. He is used up and eaten. Wouldn’t it be better to do business with people who see you as (I know this is asking a lot) people?

Really interesting article. I have kids, a mortgage, run my start up around this, work every evening as well as weekends, would like to have more hobbies but no time. I agree it is an obsessive all consuming experience. What I have learnt is everything comes from you, lead by example.

Nice story. Typical position espoused by the usually arrogant and full-of-hubris VC’s. SOME people have the responsibility of feeding, clothing and housinng families, and do not have trhe luxury of “rolling the dice” to take imprudent steps in pursuing the dream. They look to the VC’s to help make it happen. If they were fat and happy like the VC’s the VC’s would be the ones looking for funding.
It’s very easy for them to take this viewpoint from their ivory towers.

Good point, Jeffrey, especially from an European perspective: is it correct to ask an entrepreneurs to be a pig when usually the VC asks for daily eggs? In Italy VCs often look for eggs and bacon in the same investment. I think that a VC must push the entrepreneurs to obtain both but at same time a VC must be honest requiring only feasible performances.

Today I have to say I am more a “chicken” than “pig” entrepreneur. I did the “pig” in past and got burned. I like the “chicken” entrepreneur more today due to experience than anything else. You still need to get your idea or product into the marketplace, but do not risk everything in the process.
All businesses take money to get off ground. Just do not invest everything until you see some positive cashflow

Before you belly-up to the trough…make sure you have a realistic expectation of what being an entrepreneur is. Far too many clients come to me frustrated. So much so I wrote a free ebook you can download off my blog http://www.nosmokeandmirrors.com titled 50 ugly truths of starting your own business.
Mark Allen Roberts

Love the analogy. I think it can be taken in a different context. I recently packed up, sold my house, move across the country to join a start-up only to find out they were chickens instead of pigs. Sure wished I had seen this blog prior to my committment.
sincerely,
A Pig caught in a Hen House

I couldn’t agree more… Forgive me for using myself as an example, but when I decided to pursue my current project I did the following:
– Quit my job as Regional Sales Director at Salesforce.com
– Sold my house
– Gave my dog back to the breeder
– Packed up and moved to San Francisco from Sydney
I am feeling somewhat porcine and I look for similar commitment from my team.

Handicap is not related to how much golf you play…only how well you played recently. You can play everyday for 3 months and have a higher handicap than someone who plays 5 times a year.
Many golf associations who provide software to make it easy for golfers to input their scores and automatically calculate handicaps also make players scores (and when they played them) open to the public, thereby enabling nosy VCs to review a person’s golf record.

Great Analogy… Lots of good comments. I do like varied interests, keeps the mind fresh. Being an entrepreneur myself I do get tunnel vision. Exercise, or something outside gives me time to mull things over from multiple angles. Pigs not Chickens hits home a great point. If the entrepreneur has full “buy in” they absorb the risk and take a hands on approach to see it get off the ground! Thanks!

Great blog post Jeff! I agree that waiting for funding to start a company is being opportunistic: “… um, if you can’t wait – why are you waiting?”, so true! I’m part of a startup accelerator and many are surprised to see how late we stay, how we have “no life”. We left our jobs and moved to Boston in a heartbeat and are bootstrapping experts now. And while everybody is worrying about the sacrifices we make, we’re worried about the sacrifices they don’t make for their startup. Oh but there are things we couldn’t sacrifice like the feeling of building a great product people need and room for creativity (this is worth a lot!). I think that for true pigs like us, quitting our day jobs was not a sacrifice, it’s was gift, an incredible rush of adrenaline telling you: “Ok, go, focus, make it happen, make it big, your survival depends on it.” I’ll play golf, when I deserve it. I’ll practice with eggs for now.

I am a pig entrepreneur. I don’t have a car, I ride a road bike to work and I love it. I quit my day job to work on my own project, http://www.rennder.com. I plan on changing the world, helping the small business owner make more money and helping the internet grow into a more stable platform. I am your rare breed of pig.

This is not a very kosher discussion now…but interesting thoughts nonetheless. Your point on not needing a COO is something often overlooked. The better entrepreneurs understand they cannot “outsource” the operational side of the business.
As for the golf question, any decent golfer will have a handicap (the number of strokes over par they score on average), and the handicap system is maintained online for use by all golfers. This is so golf courses, clubs and event organizers can establish fair pairings for tournaments. It works quite well, but can leave you a little exposed…

That is a good point but i think that there is a separate analogy for what you are discussing above, i have no clear culinary nouns to apply to it right now.
Many times, and i have little experience so may be wrong, I hear that investors would rather invest in pigs. If the chicken turns out to be a Rooster then there is a good chance that a pig will be able to go out and find another chicken.
So I suppose it may be more about the individual investor/firm.
Also, don’t VC’s look for bacon over eggs?

Funny, but there’s a difference between the entrepreneurs the VC invest in and the business model they invest in. Increasingly, VC are investing in “chicken” business models – ie businesses that generate consistent revenue over time (the eggs) rather than a long term big sale (the bacon). So an entrepreneur must act like the pig at breakfast (fully committed) but create a business that lays consistent eggs like a chicken. I wonder if we can take this breakfast analogy further?

This reminds me of a Quora discussion about the difference between first time entrepreneurs, both older and younger than their late twenties.
This analogy sums up the topic rather well, it is generally easier for the younger, less settled entrepreneur to be able to just drop everything over the person who has kids, mortgage etc….
However, i think your overall point has little to do with age and much more about mentality – we can be pigs or chickens at any age and any life stage.
I believe that if you are not able to put 100% in to your startup, both time and emotion, then this is probably not the right time for you or it’s not quite the right idea.
I for one am a pig, a big one.
Cheers for this post.
oink

I like this analogy of pigs vs chickens, but isn’t there an argument that your entrepreneur is going to be more honest and open in discussions if they have other options?
If they know that they have the mortgage and the family college fund riding on their venture then will they always be in the right frame of mind to assess the right strategy?
Is it possible to be too committed?

To stay with the parable, before VC became an asset manager chicken job, it used to be a true pig venture for every investment. Think Warburg using their own money, or think the formation of Genentech by the late Bob Swanson, who actually worked along side the team and showed up everyday (!) for work (!) to make sure the founders had everything they needed to turn the vision into reality. Maybe today’s chicken are the mirrors of themselves, and the reason why still the vast majority of VCs live of 2% management fee rather than 20% carry. As entrepreneur I would love the same transparency on the VC I am committed to and know on each company ever invested, how things turned out. Alas that research is much harder, though CalPers comes in handy. I’d like to know how much own money they commit as opposed to OPM.